The Fed Is In No Rush to Cut Interest Rates. Here's Why That Matters.

Minutes from the Federal Reserve's January meeting, released last week, confirmed what many investors feared: the Fed is in no hurry to lower interest rates again any time soon.

Quick refresher: what does the Fed do?

The Federal Reserve ("the Fed") is America's central bank. One of its main jobs is to set the fed funds rate, which influences interest rates. When the Fed raises rates, borrowing gets more expensive, meaning higher mortgage rates, car loan rates, and credit card interest. When it lowers rates, borrowing gets cheaper, which can stimulate the economy.

The Fed's current rate is 3.50%–3.75%. This is down from over 5% in 2023 and 2024, but still meaningfully above the near-zero rates many people got used to in the 2010s.

What did the minutes say?

The January meeting minutes showed Fed officials setting a higher bar for additional cuts in 2026. With inflation still at 3% (above the 2% target) and the labor market relatively stable, most officials feel they can afford to be patient. They want to see sustained improvement in inflation before lowering rates further.

The January jobs report, which came in stronger than expected, reinforced that view. When people are employed and spending money, the economy doesn't need a stimulus boost from lower rates.

When might rates come down again?

Markets are currently pricing in only about a 57% chance of a rate cut by June 2026, down sharply from 85% just a week ago. The next major data point that could shift this: the February jobs report (due early March) and the next PCE inflation reading.

It's also worth noting that Fed Chair Jerome Powell's term as chair ends in May 2026. President Trump has already nominated Kevin Warsh as his replacement. Warsh is expected to be more willing to lower rates, at lease in the short term. With him at the helm, we could see a shift in the Fed's approach later in the year.

What does this mean for you?

If you have a variable-rate mortgage or credit card debt, the rate environment isn't getting better soon. On the flip side, if you have money in a high-yield savings account or CDs, you'll continue to earn relatively good returns for now. For homebuyers, the Fed isn't the only factor in mortgage rates — the 10-year Treasury yield matters more — but a cautious Fed does generally keep borrowing costs elevated.

Sources: Charles Schwab, Edward Jones, Bloomberg, Reuters